1. Chapter Eleven
Pricing Strategies

2. Pricing Strategies New-Product Pricing Strategies
Topic Outline
New-Product Pricing Strategies
Product Mix Pricing Strategies
Price Adjustment Strategies

3. New-Product Pricing Strategies
Market-skimming pricing
Market-penetration pricing

4. New-Product Pricing Strategies
Market-skimming pricing is a strategy with high initial prices to “skim” revenue layers from the market
Product quality and image must support the price
Buyers must want the product at the price
Costs of producing the product in small volume should not cancel the advantage of higher prices
Competitors should not be able to enter the market easily

5. New-Product Pricing Strategies
Market-penetration pricing sets a low initial price in order to penetrate the market quickly and deeply to attract a large number of buyers quickly to gain market share
Price sensitive market
Inverse relationship of production and distribution cost to sales growth
Low prices must keep competition out of the market

6. 2. Product Mix Pricing Strategies
Product line pricing
Optional- product pricing
Captive- product pricing
By-product pricing
Product bundle pricing

7. Product Mix Pricing Strategies
Product line pricing takes into account the cost differences between products in the line, customer evaluation of their features, and competitors’ prices Optional product pricing takes into account optional or accessory products along with the main product

8. Product Mix Pricing Strategies
Captive-product pricing involves products that must be used along with the main product
Two-part pricing involves breaking the price into:
Fixed fee
Variable usage fee

9. Price Mix Pricing Strategies
By-product pricing refers to products with little or no value produced as a result of the main product. Producers will seek little or no profit other than the cost to cover storage and delivery.

10. Price Mix Pricing Strategies
Product bundle pricing combines several products at a reduced price

11. 3. Price-Adjustment Strategies
Discount and allowance pricing
Segmented pricing
Psychological pricing
Promotional pricing
Geographicpricing

12. Price-Adjustment Strategies
Pricing Strategies
Discount and allowance pricing reduces prices to reward customer responses such as paying early or promoting the product
Discounts
Allowances

13. Price-Adjustment Strategies
Pricing Strategies
Segmented pricing is used when a company sells a product at two or more prices even though the difference is not based on cost

14. Price-Adjustment Strategies
Segmented Pricing
To be effective:
Market must be segmentable
Segments must show different degrees of demand
Watching the market cannot exceed the extra revenue obtained from the price difference
Must be legal

15. Price-Adjustment Strategies
Pricing Strategies
Psychological pricing occurs when sellers consider the psychology of prices and not simply the economics
Reference prices are prices that buyers carry in their minds and refer to when looking at a given product
Noting current prices
Remembering past prices
Assessing the buying situations

16. Price-Adjustment Strategies
Pricing Strategies
Promotional pricing is when prices are temporarily priced below list price or cost to increase demand
Loss leaders
Special event pricing
Cash rebates
Low-interest financing
Longer warrantees
Free maintenance

17. Price-Adjustment Strategies
Pricing Strategies
Risks of promotional pricing
Used too frequently, and copies by competitors can create “deal-prone” customers who will wait for promotions and avoid buying at regular price
Creates price wars

18. Price-Adjustment Strategies
Pricing Strategies
Geographical pricing is used for customers in different parts of the country or the world
FOB pricing
Uniformed-delivery pricing
Zone pricing
Basing-point pricing
Freight-absorption pricing

19. Price-Adjustment Strategies
Pricing Strategies
FOB (free on board) pricing means that the goods are delivered to the carrier and the title and responsibility passes to the customer
Uniformed delivery pricing means the company charges the same price plus freight to all customers, regardless of location

20. Price-Adjustment Strategies
Pricing Strategies
Zone pricing means that the company sets up two or more zones where customers within a given zone pay a single total price
Basing point pricing means that a seller selects a given city as a “basing point” and charges all customers the freight cost associated from that city to the customer location, regardless of the city from which the goods are actually shipped

21. Price-Adjustment Strategies
Pricing Strategies
Freight absorption pricing means the seller absorbs all or part of the actual freight charge as an incentive to attract business in competitive markets

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